If a Chief Financial Officer (CFO) and Managing Director (MD) Fight to the Death, Who Comes Out Alive?

Nicolas is the founder of 300 Finance Gurus and has advised more than 100 clients on their cover letters and resumes. He also provides strategies on networking, LinkedIn and interview preparation for clients in Investment Banking, Corporate Finance and Private Equity (full bio at the bottom of this article.)

The deathmatch.

It’s fun to play in first-person shooters, but it’s even more fun in real life.

And it’s most interesting when you put 2 high-level executives in the ring and ask them to toss aside the spreadsheets, the assistants, and the support teams, and simply throw down.

Today, we’re going to look at a match-up between 2 positions that you’re interested in reaching one day: the Chief Financial Officer (CFO) in the corporate finance team of a company, and the Managing Director (MD) at an investment bank.

Chances are that you don’t even know what a CFO does – so we’ll start from there and then go through everything else, from how you add value, to how you get promoted, to how much you get paid, to the best and worst parts of each job.

At the end, only one will be left standing.

Well, assuming it’s a knockout rather than a boring victory by points…

Who is a CFO, and What Does He / She Actually Do?

No one really knows.

You’ll see them on TV or pitching the company during investor calls, but it’s hard to say what exactly CFOs do all day.

Here, we’ll focus on small to medium CFOs that manage up to 10,000 employees. These CFOs are the most common, and the rank is equivalent to a Managing Director in the M&A team of a bank.

To qualify as a “CFO,” your bonus must be tied to the performance of the business – if this is not true, then you are just a glorified “chief accountant.”

Moving Down a Level: What You Do Every Day on the Job

As a CFO you have 4 main responsibilities:

Meet the Net Income Target – You define the targets for the whole company, and then your job is to make the numbers. That means coordinating with all the department heads and making sure that you execute the plan properly.

Assist the CEO with Financial and Strategic Decisions – You are the right arm of the CEO, and you help him understand the financial implications of different decisions. If this is a pure accounting decision, you won’t need the CEO’s approval – but when it comes to big moves like changing the target market or making an acquisition, you’ll have to run different scenarios and projections to help the CEO and Board reach a decision.

Keep the Regulators and Auditors Happy – You have a lot of people breathing down your neck, and you need to make sure they all certify your financial statements – unless you want to end up like Enron or WorldCom.

Grow the Talent Pipeline – Don’t forget you are also responsible for HR in corporate finance. Part of your job is to spot the talent in the organization and make sure the right people get the right jobs so that they’re challenging themselves, growing, and sticking around for the long-term.

As a Managing Director, by contrast, you split your time between 3 main tasks:

Wining and dining clients, PE firms, and VC firms to generate business – This can be done at conferences, in 1-on-1 or small group meetings, and remotely via emails, calls and video calls.

Keeping your potential clients informed of what’s going on in the markets and why it’s a great time for them to buy, sell, or raise capital (because it’s always a great time to do any of those).

Overseeing deal executions to make sure that everything runs smoothly, that deals get done, and that your bank gets paid.

Who Wins: If you want variety, the CFO role is better; if you prefer focusing on more narrowly-defined tasks, the MD wins.

How Do You Become an MD or a CFO?

For both MDs and CFOs, the answer is internal promotion. You rarely see someone from outside the industry breaking in at this level.

But there is an important difference: as a CFO, on top of working in finance your entire life, you’ve probably also spent a good amount of time with the company itself. Many Fortune 500 CFOs are “lifers.”

Sometimes Boards can bring in CEOs from the outside to give a new impulse to a division or to the company as a whole; CEOs mostly deal with strategy anyway.

But as a CFO, you have to know the processes, operations, and different divisions inside and out. Since you’ll also maintain key relationships with the regulators, it’s not a position you can change every 2 years.

So to become the CFO of a small division, you need to spend some time as a Controller, FP&A manager, or Treasurer for a division or a region first.

And then to become CFO of a big firm, you need to have 10 years+ of experience as a CFO of a large region, and also some exposure at the headquarters-level.

Or the external guy might have very specialized skills that are needed (e.g., dealing with a complex acquisition or divestiture).

Most of the time, though, being ready to hit the ground running is too important to sacrifice, and companies tend to hire internal candidates as a result.

The other issue is that the previous CFO committed to Net Income targets, and you’ll still have to hit those targets even if you get hired as an outsider. In other words, there’s no time for a smooth transition period.

If you’re an MD, by contrast, you’re more like a “free agent” in sports: you can move around to different banks more easily because you bring your full Rolodex with you each time.

The internal processes are quite similar from bank to bank, so you won’t have to spend 3 years getting up to speed.

Who Wins: Becoming CFO is more of a marathon, while becoming MD is more of a sprint that may require hopping to many different firms first. So it depends on your personality and how you prefer to “exercise.”

This same challenge exists in corporate finance when you become an FP&A manager or a Controller with a team of 20+ people – because you need to execute less and manage more.

To “add value” in either role, you need to overcome these key challenges.

As a CFO, you have a team of 50 to 100 people and you no longer do anything by yourself anymore. You just sit through meetings the whole day and make decisions.

Meetings are key because you can’t manage a whole finance department and your relationship with the CEO via 1-on-1 conversations: you can only do so via team meetings.

As a CFO, you add the most value by balancing quarterly Net Income targets with investing enough to grow earnings 5 years down the line.

So while you may not be producing work product directly, each decision you make has to contribute to that balance – and if you get it wrong, you won’t be at the company very long.

As an MD, you add value by generating deals, managing your existing relationships, and developing new relationships. That is your only job, so you must do it well.

While it’s tough to make the mid-level-to-top-level transition in both industries, there are fewer “casualties” in corporate finance at the pre-CFO level than there are at the VP-level in banking.

That’s because your results are less measurable as an FP&A Manager, whereas the numbers don’t lie when it comes to VPs and how much in fees they generate.

So some people will get away with being bad managers for 2-3 years before reality catches up and they’re forced to exit. Underperforming VPs, by contrast, are “removed” far more quickly.

Who Wins: You add the most long-term value as a skilled CFO who stays there for years, but you create more measurable value as an MD.

Chief Compensation Officer: Pay & Bonuses

For both CFOs and MDs, the biggest component of compensation is variable and completely dependent on business performance:

CFO: You make the financial plan in collaboration with the CEO, and then your bonus is based on meeting those sacred Net Income targets you announced. Sure, keeping the regulators happy and growing your team are important, but at the end of the day if you meet the target, you’ll get the maximum bonus.

MD: Your bonus is based on the amount of business you can generate, plain and simple. This is a sales job where you are pushing “technical” products. You focus on the volume of fees (top-line revenue), whereas the CFO also has to consider the quality and profitability of business his division generates.

Now let’s talk numbers: the base salary will range from $200K USD for the CFO of a small division to $600K USD for the CFO of an entire region. And then the variable part will range from 50% of this number to 200% or more if you are doing a great job.

Managing Directors’ compensation is even more variable because base salaries are often lower: on the low-end, they might be between $200K and $300K USD, though you’ll sometimes see salaries higher than that at the big banks.

But the annual bonus can take MDs up to the $2MM – $3MM+ USD range, depending on deal flow.

Who Wins: The CFO wins if you look at average compensation and factor in his much less risky “worst case scenario,” but the MD wins if you factor in the # of years required to reach the position, which can be significantly shorter.

Your Greatest Weakness: What Sucks About the Job

This is one area where MDs may seem like the winner: they’re not under tremendous pressure from their bosses as long asthey close deals.

By contrast, even a successful CFO is constantly under pressure from the CEO, the Board, the regulators, and even other corporate finance team members asking for favors.

It’s also tough to get credit as a CFO because the CEO will always get the praise for being a “visionary” if things go well – but if the company fails to deliver, you’ll be blamed for “poor execution.”

Laying people off is also tougher as a CFO because you’ll have to axe quite a few 55-year-old accountants who might find it really, really tough to get another job.

People like to say that extreme attention to detail is required in investment banking, but the requirements are actually higher in corporate finance.

If you make a mistake in a pitch book, maybe it will cost you the client or deal… in the highly unlikely case that someone actually notices.

But in corporate finance, if you “make a mistake” you have to restate the financial statements, which will send the stock price plummeting and might result in your head on a guillotine.

Management is also much tougher for a CFO, since you’re managing teams of at least 50 people and they’re not all machines willing to work crazy hours and give up their friends/family/hobbies to do the job (unlike IB analysts and associates).

You have to adopt a more “human” approach and you can’t just issue orders to your subordinates (while swearing at them and making snarky comments).

And you can’t just throw money at people to get them to stay, since your bonus pool is much smaller than the pool at banks.

As an MD, on the other hand, the worst part of your job is the constant pressure to get deals done. But that pressure is more concentrated in one area, so you have fewer tasks to worry about.

Who Wins: The MD takes this one – maybe not quite a knock-out, but definitely a victory on points.

You also get to shape the direction of a big organization for years or decades into the future, whereas everything is much shorter-term in banking.

Some people argue that investment banking is “prestigious” whereas corporate finance is a “back office job”: the second part is technically true but it’s not really accurate since, as CFO, your bonus is directly tied to business performance.

No, you’re not winning new customers for the firm… but you are managing investor relations, launching projects and doing deals, growing the talent pipeline, and traveling all over to meet customers and shape big-picture strategy with the CEO.

So it’s a lot different than a job where you’re reconciling trades or doing bookkeeping.

When you’re 25, it’s OK to work crazy hours and travel consultant-style, but when you reach age 40 it really becomes a burden.

Unfortunately, neither CFOs nor MDs enjoy a great lifestyle… for different reasons:

MD: Working with clients means that you travel a lot (at least a few times per month) to pitch your ideas and execute deals. That also means you need to be available 24/7 if a client has a question or wants to talk to you about the market. You have your minions for the execution, but it’s still not even close to a 9 to 5 job.

CFO: You’ll visit different plants and offices, but you’ll also fly to the headquarters every month for meetings. This is a “light” travel schedule compared to MDs, but there’s a catch: There’s a very low chance that your next job will be in the same city, or even in the same country.

So as CFO, you’ll have to relocate every 2 to 4 years and move your family with you.

They move to the next level within the same company or the next level externally, but 95% of the time their career moves are to the same type of job.

CFO: Let’s say you become CFO at age 40; you have 50 people reporting to you and a small portfolio. If you do well, you’ll get promoted to a bigger P&L with more challenges and maybe a different kind of portfolio. Your job will get harder and harder every 3 or 4 years, with each promotion, until you reach your “limit.” When you hit this “limit” you’ll spend more time in each job and your assignments will vary until you retire or get fired.

Some people never reach their limit and instead become CFO of an entire Fortune 100 company; sometimes they even get promoted to other C-level roles.

If you’ve been adding up the points all along, you’ll see that the MD has come out 2 points ahead – but that’s not the whole story.

Most of the categories were tied, so I’d argue that this one comes down to your personality more than anything.

If you’d rather specialize and use one specific skill (sales) to win new clients and do deals, the Managing Director job option is better. Pay is more variable, the work is more stressful at times, and you’re under constant pressure to do deals.

On the other hand, if you’re a jack of all trades, you like managing big teams and making long-term investment decisions, and you want to stay in one role for a long time, then Chief Financial Officer jobs are better.

Whatever you choose, keep in mind that very few people ever make it to the MD or CFO rank because the “pyramid” is very steep.

Just imagine how many Egyptians likely died building the pyramids, and you’ll get an idea of the “casualty rate” as you ascend to the top in either of these roles.

So it’s a bit of a false choice: the question you should be asking yourself is which industry you’re excited about to begin with – you may not reach that ultimate destination, so you better enjoy the ride.

Let us know what you think about this CFO vs. MD debate in the comments!

About the Author

Nicolas Doumenc is the Founder of 300 Finance Gurus, a website where he grills 300 Managing Directors, CFOs, Vice-Presidents, Associates, and headhunters on their best networking and interviewing techniques. He also offers career coaching and resume/CV editing services there.

Comments

I had 2 years of accounting experience and then quit my job and joined master program in top European school. Currently, I want to get in IBD and work there for 3-4 years and make it to Associate level. However, after that I want to move to Corporate Finance and be eventually CFO of big company. My question is how realistic is this career plan? If I get 3-4 years experience in IBD, can I move to Financial manager role in mid-sized company afterwards and go towards CFO role eventually?

I think it’s possible, but why bother going into IB first? Your story will be much harder to explain like that (accounting –> IB –> back to an accounting-esque role). Normally they want people who have moved up through the ranks within the corporate finance team. So it’s possible to do this, but it’s more likely to work at small-to-mid-sized companies.

I work in CF right now, and once you get to the point where you hit Finance Director, you have to have a CPA and have the accounting department under one half of you etc. I can’t stand the accounting department and to get a CPA you have to work directly under a CPA for a few years.

It’s basically not possible to hit Finance Director or CFO without a CPA and doing the accounting work is it? I mean if I were to go from where I am now and work in accounting, I’d take a 60% pay cut and have to deal with all that. Is there a workaround?

How do you make that jump and go from the finance department maybe FP&A Manager to the higher levels? Controllers already hate us to begin with.

I think Nicolas will have to weigh in on this once since it’s above my pay grade, but yes, I think you have to do some form of accounting work, at least at large companies.

The main “loophole” is becoming CFO at a tech or biotech (for example) start-up. I know one banker who worked at a bulge bracket as an IB analyst for 2 years, took a few months off, joined the corporate finance department of a fast-growing start-up, and somehow became CFO after about 5-6 years there, when he was just over 30. Granted, it’s not a huge company (~1,000 employees now) but that’s still pretty ridiculous.

So that’s probably the main workaround… get some experience, join a fast-growing company, move up quickly when there’s no one else qualified, and then leverage that promotion to move in at the same level at a bigger company.

I agree with Brian and that’s one loophole. To get to the Director level I wouldn’t say that CPA is mandatory, at least that depends on the company. But to get to Director/CFO you’ll have to have one experience in controllership/accounting yes. If you can’t stand controllership that much you’re probably not going to like the CFO role either because regulatory stuff & accounting is a good chunk of your job…If you don’t like the journey and don’t like the destination that might not be worth it.

At the Director or CFO level, is there a lot of granular detail in accounting? It would seem that knowledge of it would be obvious, but the accounting department normally has droves of people that perform routines like journal entries, accruals, etc.

I have this image in my head, and it could be completely wrong, that the focus at that level is more strategic and the accounting routine would be left up to the Controller and their people. I have a hard time picturing the CFO logging into SAP to verify activity.

If daily accounting activity is the destination, is the only escape (while advancing) either to branch off into strategic planning or go back to financial services? What do guys do when they really like finance a lot but don’t want to deal with daily accounting routine? I guess that’s my burning question.

Of course CFOs are not booking journal entries or logging into SAP/Oracle to check the system. Even the Controller would get reports from the team on that.
But a CFO could be involved in approving the big journal entries for an acquisition/disposition if it has consequences on the P&L or in the legal entity structure etc. This is not daily accounting but it involves understanding controllership.
That means 95% of the CFO will have a controllership experience. Which doesn’t mean daily accounting routine and being a pure accountant, please check out this article for more details: http://www.mergersandinquisitions.com/corporate-finance-jobs/
So If you really like finance a lot you go and get your controllership experience for a few years which is not being a 9 to 5 accountant or anything but more analysis, big transaction accounting, simplifying processes etc. If you can’t push yourself to do this that means you probably won’t be able to go the CFO route.

I respect your opinion and that’s the best career if you’re into sales. I like the challenge of the CFO though. A MD can have an amazing year just selling hot air to people with great deals on paper and no synergies when the deal is done. For a CFO you need to make commitments to the investors and then deliver on that…It’s a broader mix of skills.

Nicolas, great article. I think there is really good information on the four main responsibilities of a CFO.

However, are you sure about how CFO’s would most likely relocate every 2 to 4 years? I am not sure, but I would think that CFO’s stay in the same city but simply travel occasionally to the different offices for meetings instead of actually relocating.

Hi Michael and thanks a lot for your comment!
The relocation rhythm depends on the company. If you work for a Fortune 100, where the divisions are in different countries, different cities etc then your assignments will be all over the world.
If the company is smaller than you’ll probably be based at the headquarter and travel one day a week.

Hi there,
I’ll give you my view on this and Brian might drop by later for his.
It’s not clear to me what your executive role would be so it’s hard to identify the aspects you might like or not.
I recommend you create a big list of what you did before, what you’re doing now and what you might do in the new role. Then see if you’d do more of what you enjoy and less of what you don’t like. If the balance tilts in the right direction take the job… but don’t get lured by the “executive” aspect.
I saw that first hand with some of my clients, they like the title but 3 months later they ask me to help out find something else because the job is not that great.

I would generally agree with Nicolas- you have to make a list of what you like and don’t like and see how that new role matches up. A title alone won’t help you if it’s not the work you want to be doing, even if it’s technically a promotion.

So I would really probe them on the specifics of the role before you accept anything, and go through day-by-day what you’ll be doing, down to very small details.

Hi. Great article! As above, I would like to know more about entry opportunities in becoming a CFO from a college graduate perspective. How can I best prepare myself if I do eventually decide I want to work in high level corporate development? I have seen elsewhere that a lot of CEO/CFO have attained accountancy qualifications prior to joining their firms, would you say it is essential for me to qualify as a CPA after graduating? Or is it better to work in traditional IB first and then lateral back into corporate finance?

Hi Darren. CPA is a good thing yes and give you solide foundations for Corp finance but it’s not mandatory. Doing IB and then deciding if you want to transition to Corp Finance will keep more doors open.
My advice would be to get internships in Corp Finance and IB to see what you prefer…it’s also a good way to land a full time job!

That should have been a paragraph you’re right!
Being CFO of a division or a country for a big company is pretty glamorous in my opinion but the MD gets to say “I’m a banker”.
If you think MD is so cool because you’re a rainmaker, keep in mind that any CFO can call you at midnight and ask about 200 slides on companies he could acquire… just for fun!

Glad you liked it! Regarding entry opportunities:
The best way to break into corporate finance is through a rotational program at a F500 which will accelerate your career (I will discuss that in-depth in another article). The other possibility is to do Big 4 audit for a few years and then come in at the manager level.
The best way to break into Investment Banking is…well I let you read the excellent articles on this website!

I’ve worked in IB and now work in Corp Dev and say that this is largely accurate but more true for a conglomerate or fortune 500 company. This ignores the silicon valley CFO trade that is true for tech, biotech industries and other pure play companies. In these industries you hire a CFO 2 years before you plan to go public and compensate them with a lot of stock and even more stock if they hit their plan and achieve a successful IPO. In these case CFOs have a lot more upside, its not uncommon to see CFO take home 10-100MM after the successful IPO and many don’t last for more than 5 years. My CFO took home ~40MM with the IPO.

Hi Bob,
Thanks for bringing that perspective. This is true that the article focuses on F500 companies where you are CFO of a division or a region. Being the CFO of a company right before it goes public is a completely different challenge with leaner teams and a lot more upside if it goes right!
40MM USD is 5 years of the total comp of a Fortune 10 CFO… pretty sweet.

One thing I have noticed among senior finance executives – and you briefly alluded to it in your article – is that if you get senior in corporate finance, say divisional CFO / Finance Director or something similar, and you are say 55, and you get fired, it can be extremely difficult to get another job. Maybe you will have to take interim work / some kind of freelance work. Not a nice way to end your career.

That’s very true. Some CFOs do advisory work or join PE firms and help turnaround firms which are struggling. Some do part time CFO jobs for small companies who can’t afford a full time CFO. But some never find a job again. You have to keep in mind though that they probably have a very nice saving account and a generous severance package…so not the worst way to finish your career!

I want to know a little more about the entry opportunities for Corporate Finance, in this case, I must say I’ve already read some of M&I articles. But I think my case is quite different.

I did some Audit work for a few months as an undergraduate in a renowned global accounting firm. Later I had more administrative and operational positions (with some accounting tasks related) in some multinationals after graduating from my Bachelor Degree in Accounting (this is a little more than two years). After that, I made it to get a position of Audit Assistant at a Big 4 Accounting firm in my home country, Dominican Republic, and almost a year later I moved to China to pursue a Master Degree in Economics and Finance in UIBE, Beijing, China. This last is what I’m doing right now, expecting to graduate by summer 2017. Sorry for this long story, just wanted you to figure out a little my background.

Nowadays, I’m actually trying to find an internship in United States, because I’m very interested to get into international markets and have real growth opportunities which I couldn’t have in my home country, that’s exactly why I decided to go abroad. But it seems to be something very difficult because I need sponsorship for the work visa and even here in China it’s a little difficult to find an internship because of the language barrier, although I have a few months learning mandarin.

However, I wanted to do this internship in Investment Banking in order to get full time position in the field after graduating and then, after having some experience, moving to Corporate Finance, which is my real interest. Anyway, I don’t think I can have many opportunities to choose the kind of internship I really want to do, but just one intership in any finance field I could find.

So, considering my professional background and my actual limitations, my question is: what are your suggestions for me (a 24-years-old latino woman) to break into the US market (in the Corporate Finance field) and also if it’s suitable to start in Investment Banking and then moving to Corporate Finance, or just trying to get into the Corporate Finance field?